Advisors get ‘real’ with clients

Advisors get ‘real’ with clients

Q2 reports are out and the findings suggest advisors are increasingly free of the burden of managing the unrealistic client expectations.

“Investors should be cautious about expecting these returns to continue and now may be an appropriate time to re-calibrate expectations,” stated the Mawer Q2 report. “It is difficult to be excited about the valuations that we see in most markets today.”

Clients themselves are already hip to the new reality, with new research suggesting they have adjusted their expectations for equities.

"Instability in China and Greece have dampenedtheoptimism for the Canadian market we would normally see; the Canadian economy is heavily reliant on Chinese demand for oil, and without that rising, investors will remain overly cautious," says Howard Atkinson, President of Horizons ETFs, which put out its own quarterly report Monday. "Advisors as usual are more bullish than investors due to their ability to tune out negative news headlines and stay focused on longer-term trends."

In the most telling of stats, 39 per cent of advisors are bullish on the S&P/TSX 60 in the third quarter compared to 54 per cent in Q2, a 15 per cent reversal in this sentiment. Meanwhile, investor sentiment for the index in Q3 has dropped 13 per cent to 29 percent, a full 10 percentage points less than advisors.

Highview portfolio manager Dan Hallett believes some of this bearishness reflects a change in performance of the various indexes from Q1 to Q2.

Mawer Investment Management’s Q2 report echoes this sentiment pointing out that its Balanced Fund gained 7.4 per cent in Q1 (net of fees) compared to a negative return of 1.2 per cent in the second quarter. That’s enough to sour the appetite for equities for even the most seasoned investor.

While this might be an appropriate thought given the markets have been on a seven-year run, it’s also important that advisors don’t pullback their equity weightings too quickly as the latest results are just one quarter.

“While I would agree that many stock valuations are at the high end of the normal range, you can’t lose sight of the broader market context (ie. record low interest rates) and in turn an earnings yield that is still better than current interest rates,” Bellwether Investment Management CEO Bob Sewell told WP. “This is really a time when as a portfolio manager you need to be selective meaning that you need to be investing in companies that are growing their earnings at a rate that justifies a higher valuation. This is an opportunity to demonstrate the benefits of active management.”